NEW DELHI: The government has asked Amazon to ensure a clear segregation between the food products it wants to sell directly to consumers and the other merchandise it lists online, a likely precursor to granting permission to the US-based ecommerce giant to commence food retailing in India.

Amazon had sought approval to invest Rs 3,500 crore in India over five years to sell third-party and its own private-label food articles, sourced and packaged locally.

The company is likely to comply with the government's advice and a formal response is expected soon, people familiar with the matter said.The products for direct retailing to consumers are likely to be stored in separate warehouses, they added.

Amazon was the first global bigwig to seek the government's permission to invest after India last year allowed 100% foreign ownership in food retailing. Foreign-funded companies, however, still aren't permitted to directly retail other merchandise online —hence the need for the segregation of stocks.

Amazon is likely to become a seller of food products on its own marketplace through one of its subsidiaries, the people said. Currently, third-party sellers offer food items through two Amazon platforms, Amazon Pantry and Amazon Now, and the company is likely to use these for direct retailing as well. Amazon Pantry allows customers to order up to 15 kg of products — bulk packs of monthly and weekly grocery and household essentials — which will be home-delivered the next day with a shipping charge of Rs 20. Amazon Now is an app from where consumers can order products of daily use from big outlets and malls for a guaranteed twohour delivery.

"We have sought an approval to invest and partner with the government in achieving this vision," an Amazon spokesperson said, but didn't provide details.

The Seattle-based company is investing billions of dollars in India, where it is entangled in a no-holds-barred battle with rival Flipkart for market share.

It is showing interest in food retailing, a segment that has big revenue potential but where the margin is wafer-thin, when others like Wal-Mart Stores have cold-shouldered the idea saying selling food alone wouldn't make business sense.

In its application to the Department of Industrial Policy and Promotion (DIPP), which facilitates investments, Amazon said it plans to retail "food products (produced or manufactured in India) to customers at any location through any channel, offline or online, including ecommerce, across India".

The application was filed earlier this year by Amazon Corporate Holding Pvt Ltd, a Singapore-based subsidiary which will own 99% of the proposed entity. Amazon.com Inc, Mauritius will hold the rest.

Amazon told DIPP that it would develop infrastructure, including warehouses and distribution facilities such as a temperature-controlled supply chain, to undertake farm-to-fork retailing of food items which could yield better returns for farmers by reducing waste and cutting legions of intermediaries generally involved in the food supply chain.

The government's move to allow 100% foreign direct investment in food retailing was aimed at giving an impetus to the farm sector. It expects organised retail to source directly from farmers, thereby cutting down on the middlemen who eat into the earnings of the producers and often control market prices.

However, the effort was met with a lukewarm response from global companies such as Wal-Mart, Nestle, Heinz and Thailand’s CP Foods to generate investments under the new category.

Some positive response, though, started trickling in late last year, with applications from hyper-local delivery startups Grofers and Bigbasket.